Netflix

A lot has been going on at Netflix as of late. First they raise prices by up to 60% in some cases. Now, they’ve come out and said “oops, our bad, we raised prices because we’re splitting the company into two orgs, one for streaming (Netflix), and one for DVD-by-mail (Qwikster1).

Excerpt from email sent to all Netflix subscribers:

For the past five years, my greatest fear at Netflix has been that we wouldn’t make the leap from success in DVDs to success in streaming. Most companies that are great at something – like AOL dialup or Borders bookstores – do not become great at new things people want (streaming for us). So we moved quickly into streaming, but I should have personally given you a full explanation of why we are splitting the services and thereby increasing prices. It wouldn’t have changed the price increase, but it would have been the right thing to do.

So here is what we are doing and why.

Many members love our DVD service, as I do, because nearly every movie ever made is published on DVD. DVD is a great option for those who want the huge and comprehensive selection of movies.

I also love our streaming service because it is integrated into my TV, and I can watch anytime I want. The benefits of our streaming service are really quite different from the benefits of DVD by mail. We need to focus on rapid improvement as streaming technology and the market evolves, without maintaining compatibility with our DVD by mail service.

So we realized that streaming and DVD by mail are really becoming two different businesses, with very different cost structures, that need to be marketed differently, and we need to let each grow and operate independently.

It’s hard to write this after over 10 years of mailing DVDs with pride, but we think it is necessary: In a few weeks, we will rename our DVD by mail service to “Qwikster”. We chose the name Qwikster because it refers to quick delivery. We will keep the name “Netflix” for streaming.

First, Mr. Hastings, this probably should have waited. As a friend put it, the war with the ISPs has not been won yet, and while that was going on, you could have used that extra cushion from the DVD mailings. You have managed to get Netflix integrated onto nearly every customer owned modern TV device (Apple TV, most network capable Blu-Ray players, many TVs, every modern game console, etc). So that customer penetration base has no doubt skyrocketed. But as someone pointed out, the number of streams you can have going is related to DVD rental numbers. Which I guess would mean we’ll see streaming tiered pricing here shortly, since your DVD-by-mail rentals will no longer be tied, at all, to your streaming account.

But really, I think the issue here is still a bit disingenuous. What you are doing is separating the customer base that will eventually decline (DVD-by-mail) from the customer base that will continue to grow (Streaming). And maybe your timetable was pushed forward a bit by the news of the US Postal Service having serious financial issues, I don’t know. But regardless, you’re still not being completely honest here. Now, when you lose 600k customers from DVD-by-mail, you don’t have to report that as part of your Netflix customer base, you can just have Qwikster report it. Which, I’m sure, is why Wall Street will love this move. It’s logical, but I still think it’s a bit early.

As Wired said, I’m not sure how this is going to be GOOD for the customer, since there probably won’t be a way to use only one site, add DVDs to that queue, and streaming movies to another. You’ll get two queues (which you already have), two sites, two searches, etc. Never mind the gripe most people have had since the whole Netflix streaming focus really took off: “You can’t get every movie Netflix has on DVD on streaming”. Until that’s addressed, and the ISP bandwidth/data usage argument, most serious movie watchers are now going to have two bills: Netflix for streaming, and Qwikster for DVD-by-mail.

Update 1: To add fuel to the fire, we have this, and this… both featured prominently on MSNBC’s website. I would not be surprised if after all this, Mr. Hastings is looking for a new job.